Posts tagged with: finance

Last week’s issuance of “A Call for Intergenerational Justice: A Christian Proposal on the American Debt Crisis” has occasioned a good bit of discussion on the topic, both here at the PowerBlog and around various other blogs and social media sites.

It has been interesting to see the reaction that my comments about the Call have generated. Many have said that I simply misunderstood or misread the document. I have taken the time to reread the document and do some reassessment of the entire debate. Unfortunately this has raised more questions than answers for me thus far.

Gideon Strauss, CEO of the Center for Public Justice, has kindly offered to help us sort out some of these concerns. He’s in Grand Rapids later this week and has generously agreed to a public discussion in an open mic, informal setting we’re calling, “Opposing Views: America’s Debt Crisis and ‘A Call for Intergenerational Justice.’”

Details are below and at the Facebook event page. We plan to record the event and make it available for those who aren’t able to join us. But if you are, come along and bring your questions.
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Blog author: hunter.baker
posted by on Wednesday, February 9, 2011

Michael Kinsley has a column up at The Politico in which he claims to debunk a series of Reagan myths. The one that annoys me the most is the one that is obviously and clearly incorrect and at the same time gets the least explanation from Kinsley. Here it is:

6. The Reagan tax cuts paid for themselves because of the Laffer Curve. Please.

With every other “myth” Kinsley takes on, he at least feels the need to explain himself. Not so with the Laffer Curve. I suspect the reason Kinsley doesn’t narrate here is because the slightest bit of examination would reveal that the Laffer Curve is AXIOMATICALLY TRUE.

Too much? No. The Laffer Curve is undeniable. It looks like this:

It is very simple. If you tax at either 0% or 100% you will get nothing because either there is no tax OR the effort of making money is not worth it. You can increase taxes to some optimum point where you will continue to get more revenue up to the point where increased taxation becomes counterproductive because it causes people to reduce their effort. We observed this phenomenon actually occurring in the United States when we had ultra-high marginal tax rates. Various types of earners curtailed their effort once they hit the magic level at which they would begin to pay the highest rates. They preferred to put off additional activity until the next year. Famously, the detective novels about Nero Wolfe mentioned his tendency to take a few months off at the end of the year because of the top rates of taxation.

Because people react rationally to high rates of taxation, you will realize less revenue because of a reduction in taxable activity. What exactly is Kinsley saying “Please.” about? Does he deny that moving from a 70% tax on the highest earners to a rate in the 30′s or high 20′s could lead to increased revenue as top producers expand their efforts and investments AND stop working so hard to conceal money they have made and otherwise evade taxation? At a lower rate, it is obvious that non-compliance becomes a risk much less worth taking.

No, Reagan’s embrace of the Laffer Curve was the most rock-solid common sense. And by the way, look at federal revenues after the tax reduction. Real federal revenues increased quite nicely.

The only way the Laffer Curve would be wrong is if one misinterpreted it, as some do. For example, anyone suggesting you would gain more revenue by reducing a 20% tax rate to 10% is probably wrong. But moving out of the prohibitive zone, which is likely anything over 50%, is a shrewd policy decision.

“The Deal Professor,” Steven M. Davidoff, has a good piece at The New York Times website about the indispensability of finance to our economy. It briefly rebuts the view popularized in the Oliver Stone movie Wall Street, in which financiers are portrayed as greedy parasites. I left a comment at the web page, noting that our documentary The Call of the Entrepreneur makes a similar case. I include the comment below, since it may not pass muster with the page’s comment moderator:

A documentary that explores the wealth-creating role both of the entrepreneur simpliciter and the finance entrepreneur in particular: The Call of the Entrepreneur. The film appeared on more than 80 PBS affiliates nationwide, including repeated airings in several major markets. And in what may be a first, it appeared both on PBS and Fox Business. I mention this by way of reassuring readers that the documentary isn’t screechy.

The one-hour film is a combination of narrative and expert commentary that many have found useful for explaining what entrepreneurs and merchant bankers bring to the economy, a particularly useful explanation for friends and family who wouldn’t read a lengthy article or book on the subject but will watch a documentary with high production values. It doesn’t pretend that there isn’t corruption or greed on Wall Street, but it does insist that these elements do not provide a full picture.

Full disclosure: I wrote the script for the documentary and am a fellow of the institute that created the film, The Acton Institute. The film is available at calloftheentrepreneur.com/. Also, the film doesn’t address the market distortions generated by Alan Greenspan and others, distortions that encouraged excesses in the financing world leading up to the economic crisis. Those issues are tackled at our web page on the economic crisis: acton.org/issues/economy.php/.

— Jonathan Witt

Thanks to Clear Channel Radio, I was able to attend Dave Ramsey’s event in Grand Rapids last night. I used to listen to Ramsey on the radio quite a bit as a seminary student in Kentucky and I was always impressed by how much he was inspiring American families to live within their means and become better financial stewards of their resources and income. His own personal faith testimony is very real and inspiring and that brings me to another point concerning his presentation last night.

Last month, Acton’s director of communications, John Couretas, wrote a commentary titled “Obama and the Moral Imagination,” where he asked “If religious conservatives and free market advocates are to oppose Obama on those issues where there is fundamental disagreement, they will have to craft their own counter-narrative to ‘change the trajectory.’ No small task.”

One of my immediate impressions about Ramsey is his mastery of the narrative style of teaching and motivating. He effectively uses his own personal testimony to motivate people. By using his story in the fashion that he does, he disarms possible objections to his teachings and allows attendees to embrace and connect their story to Ramsey’s story. And I mean, not only his financial story, but also his own faith story as well. I would also add that his humor is far wittier and funnier perhaps than any stand up comedy I have ever heard.

How does this then relate to fiscal conservatism and the importance of free markets? Several times last night Ramsey stressed this by saying that “you are not going to spend like Congress anymore.” He uses the story and behavior of Congress to powerfully contrast that with a new found ability of a person to budget, save, and invest. Ramsey even expressed his strong desire to see Congress overturned. He expressed confidence in the long term benefits of the market, while simultaneously denouncing the stimulus bill. Here is a you tube clip of Ramsey on his radio show railing against what he calls the “spending bill.” Ramsey made a good point I stressed last week on a radio appearance of my own, and that is this: “When America is more financially responsible, they will demand more financial responsibility from their leaders.”

The entire event is a creative introduction to his financial teachings, what he calls the seven baby steps to get your financial future on track. He ended the event by sharing more about his relationship with God, and stressing that it is relationship with God that matters most, and it is the greatest life changing principle he teaches.

Zenit news service provides extensive coverage of two recent Acton-sponsored conferences in Rome. The first of half of Edward Pentin’s report focuses on Arthur Brooks‘ address at the “Philanthropy and Human Rights” gathering. A sample:

His friend had found that when people gave, they became happier, and when they were happier they became richer. Brooks was subsequently converted, and the discovery changed his life. Moreover, now he realizes that people have as much need to give as they have to receive, he believes those institutions that act as a conduit between the giver and the receiver, such as the Church, must be helped and encouraged.

The second half treats Carlos Hoevel‘s presentation on Antonio Rosmini, part of a symposium on “Finance, Globalization, and Morality.” Pentin writes,

So what would be Rosimini’s solution to the current crisis? Hoevel said that, according to the philosopher’s vision, what we most need now is not so much “the endless injection of billions of dollars and euros” into the economy and heavy government interference, but “the urgent recovery of moral balance and moral content.”

Congress is debating a number of measures designed to “rescue” homeowners facing foreclosure as the housing and credit crisis grinds more and more financial and real estate assets to dust. Much of the reporting on the credit crisis, in the tradition of objective journalism, strains to explain the problem objectively, as if what was happening in the markets was somehow an act of nature, something unguided by human action. Thus, people “fell” into the problem as if pulled by a gravitational force:

Congress has been struggling for months to respond to a mortgage crisis that has left more than 1.2 million homes in foreclosure, with an additional 3 million forecast to join them over the next two years. Most involve subprime loans that established terms the borrowers could not afford. As homeowners defaulted and fell into foreclosure, home prices fell more than 10 percent. Many borrowers who are having trouble making payments find that they cannot sell or refinance their homes because they owe their banks more than their homes are worth.

But markets and industries and trade are guided by human beings, who have fairly well known tendencies. In “The Human Foundation of Financial Risk,” Alex J. Pollack of the American Enterprise Institute looks at that depressingly predictable mass hysteria that has propelled one financial bubble after another from the South Sea Bubble of 1720 and beyond. The “great twenty-first century housing and mortage bubble,” he argues, is just the most recent example.

Pollack notes how the mortgage securities market, looking out on a housing expansion that seemed unending, became “enamored” of statistical models of risk crafted by some of the best and brightest on Wall Street. How well did these arcane formulas come to grips with the human factor?, Pollack asks.

Did they pick up the effects of short memories–of the inclination to convince ourselves that we are experiencing “innovation” and “creativity” when all that is happening is a lowering of credit standards by new names–or of what are rightly considered unearned risk premiums being counted as profits and paid out as bonuses? Did the models adequately take into account the cumulative human forces of optimism, gullibility, short-term focus, genuine belief in momentum, extrapolation of so-far-profitable speculations, group psychology, and increasing fraud? Did the models keep up with the fact that as they were running, the behavior was changing? Obviously, they did not.

He reminds us that the reason financial bubbles are so seductive is that, for awhile at least, everyone associated does pretty well. Homeowners were getting more and more house with easier borrowing terms, lenders were generating profits from ever more creative strategies, and Wall Street was packaging and reselling this stuff to investors all over the world. All the while, Congress and the White House were crowing about ever higher levels of home ownership and participation in the American Dream.

Pollack points to the “widespread realization” in early 2007 that a large proportion of subprime mortages and subprime mortgage securities were going to default as the beginning of the end. It was the disillusion that crashed the party. “The end of belief ends the bubble and begins the bust,” Pollack writes. Let the panic begin.

We’re now in the early phase in what is likely to be a massive push in Washington to bring new regulation to the financial services industry and “rescue” more homeowners in an election year (but probably not the homeowners who have been paying their bills). Pollack again sees how this typically plays out:

In the wake of a bust, there is always a predictable series of political activities: first, the search for the guilty; second, the fall of previously esteemed heroes; and third, legislation and increased regulation to ensure that “this will never happen again.” But, with time, it always does happen again. Consider in this context the statement of the comptroller of the currency in 1914 that with the creation of the Federal Reserve, “financial and commercial crises, or panics . . . seem to be mathematically impossible.”

Pollack talks about the “cumulative human forces” behind the bust. From a Christian perspective, these “cumulative” factors would also include a healthy awareness of the reality of sin. There will always be the risk of cheating and greed and theft in financial affairs, personal and corporate. When that risk is inflated with the bubble, then its effects, as we have seen, may be impossible to contain. And no group caught up in the enthusiasm of the housing and mortgage bubble was immune from it — not the homeowner, not the lender, not the securities market.

The new risk we face is that the regulatory cure proposed by Washington will have it’s own illusions of “innovation” and “creativity” — with a naive belief in the power of government to make any more financial crises “impossible.” Federal bailouts for both bankers and borrowers are on the table. Over-reaction and over-regulation is likely to follow. There will be no discussions about the nature of sin in Congressional hearings, but there will be plenty of demons. Mostly, mortgage lenders. As Pollack observes, it’s all too predictable.

Blog author: rnothstine
posted by on Wednesday, September 19, 2007

In what is shaping up to appear like court imposed taxation, Microsoft lost its appeal in a major anti-trust case at Europe’s second highest court yesterday. The European Union’s Court of First Instance backed the European Commission’s 2004 decision to fine Microsoft and order the software giant to change its Windows operating system to make it more compatible with rival systems. The 2004 verdict imposed a record fine on Microsoft in the amount of $497 million.

The long feud appears, by some at least, to be a case of over regulation by the EU, and a propping up of their own sagging technological market at the expense of consumers. It is, at the very least, a classic example of not trusting the free market to correct any perceived problems or inefficiencies with Microsoft operating systems.

Are iTunes and Apple next?

Here’s a roundup to our running coverage of the Microsoft issue, including Alberto Mingardi’s commentary, titled, Letter from Turin: The EU’s Immoral Case Against Microsoft. In his piece Mingardi said, “What these companies don’t want is for Microsoft to ‘prevent’ them from succeeding in the European market. What competitors really fear is Microsoft’s ability to satisfy consumers better than they do, at a cheaper price.” .

Full Acton Commentary by Alberto Mingardi

Jordan Ballor also weighed in on the PowerBlog:

EU Conflicts of Interest

Open Source, Closed Markets

Also for a valuable look back at Microsoft’s anti-trust past battles in the United States:

Microsoft’s Innovation, Service, and Foresight Result in Consumer Trust and Government Antitrust Action, by Joseph Klesney

Free-Market Morals and the Microsoft Case
, by Jason Miller

Microsoft: A ‘Monopoly’ for the Consumer
, by Robert Crowner